Speaking to the annual monetary policy conference in Jackson Hole, Wyo., today, Federal Reserve Chairman Janet Yellen offered a broad defense of the post-financial crisis regulatory framework but embraced “appropriate adjustments” as the economy and global landscape evolve.
“The scope and complexity of financial regulatory reforms demand that policymakers and researchers remain alert to both areas for improvement and unexpected side effects,” Yellen said. “The Federal Reserve is committed to continuing to evaluate the effects of regulation on financial stability and on the broader economy and to making appropriate adjustments.” For example, she said, “some regulations may be affecting market liquidity somewhat.” As a result, she echoed her own previous comments and those of other Fed officials in saying that “there may be benefits to simplifying aspects of the Volcker rule . . . and to reviewing the interaction of the enhanced supplementary leverage ratio with risk-based capital requirements.”
Yellen touted the Fed’s efforts — supported by the American Bankers Association — to revamp the stress testing process and to align them with capital requirements and added that “a broader set of changes to the new financial regulatory framework may deserve consideration,” in particular for smaller and midsize banks as well as in the area of resolution planning. She specifically cited community banks’ disproportionate role in providing financing for small businesses and noted that with some firms “facing difficulties” getting loans, the Fed is “taking steps and examining additional steps” to relieve community bank burdens.
ABA welcomed Yellen’s remarks. “We agree with Chair Yellen that the financial system is more resilient today and banks are safer thanks to post-crisis changes made by policymakers and bankers,” said President and CEO Rob Nichols. “We also welcome her acknowledgment that not all those rules are working as intended and the Fed is prepared to make ‘appropriate adjustments’ so banks can better serve their communities. In order to accelerate economic growth and make sure Americans get access to the credit they deserve, we urge that those fixes be made sooner rather than later.”